by Jade Thomason
Equity and Fixed Income Trader
On December 1, we gather as a firm to commemorate and pay homage to the founders of Ferguson Wellman. We reflect on those who came before us and celebrate our shared vision for the future – we cherish this tradition and look forward to it every year. Traditions like this are an integral part of the holiday season, which officially kicked off with the year’s busiest shopping weekend. The number of Black Friday and Cyber Monday commercials, promotions and emails were staggering, but did consumers take the bait?
Consumer Sentiment
Based on the University of Michigan’s Sentiment Index, U.S. consumers are discouraged. This index is based on a long-running survey of households and provides a monthly gauge of how consumers feel about the economy, personal finances and business conditions.
Sources: St. Louis Fed, University of Michigan
Despite this low metric, a record-breaking 200 million shoppers perused online and in-store sales. So far, spending estimates are softer than in previous years, but the shopping season is far from over, and consumers are well positioned financially. Savings built up during the pandemic are diminishing but not gone, and this is one of the drivers behind this record-breaking weekend. The labor market also remains strong, and according to the Labor Department, there are a seasonally adjusted 2.4 million more jobs in the U.S. than in December of last year. This rosy economic picture is difficult to reconcile with lower consumer sentiment. What’s missing?
What Lies Beneath the Surface
The strength of the U.S. consumer has been one of the most surprising trends in 2023 – no one expected this level of resilience when the Federal Reserve rapidly increased interest rates. A contributing factor is the age of the consumer. Earlier this year, the U.S. Census Bureau reported that Americans aged 65 and older were nearly 18% of the population, the highest on record going back to 1920. Importantly, they are also spending more. The resilience of the economy can be attributed to the financial health of older Americans - they have less need to borrow and, unlike other consumers, are not at risk of layoffs. The spending of Americans aged 65 and older has a definitive upward trajectory compared to other groups. In 2005, their spending amounted to 14% of the total, but it has grown to almost 22% in fewer than 20 years. The spending power generated by Americans aged 65 years and older lays a substantial foundation to prop up the economy. Younger Americans have more consumer debt and student loans. They are less likely to own their homes outright, which creates a less stable financial situation in a period of higher interest rates. The vastly different financial situations may be the key to explaining the sour sentiment – not all consumers are created equal.
Takeaways from the Week
The Fed’s preferred inflation gauge, the personal consumption expenditures price index (PCE), was in line with expectations, rising 0.2% in October, down sharply from the 0.7% rise in September
Charlie Munger, Warren Buffet’s partner and vice chairman of Berkshire Hathaway, passed away on Tuesday at the age of 99. He was a true legend and embodied wisdom, wit and an unparalleled depth of investment insight